Will China’s Clamp Down on Mining Create Long Term Impact on the Price of Bitcoin?

By
Wieke Beenen
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71
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Chinese Vice Premier Liu He told a group of finance officials last Friday that the government would clamp down on bitcoin mining and trading. The reason behind this decision is said to be China’s goal to achieve financial stability. While China has taken steps to restrict the use of cryptocurrencies for many years now, this focus on mining is quite new.

An official from mining company BIT.TOP suggested that the Chinese government is trying to prevent a massive flow of capital into crypto mining. But this does not mean that individuals should not still be allowed to mine on their own. He expected that half of the country’s mining machines could be suspended as a result of the latest actions, which is mainly focused on big mining farms.

The regulatory risk to continue mining activities is already stopping Chinese mining company BIT.TOP, who is said to mainly offer mining services in North America from now on.

The consequences for cryptos could be serious. China accounts for more than 65% of bitcoin mining around the world, according to statista.com, though it’s hard to say what the concequences are going to be long term.

Bitcoin and shares in crypto-related companies were visibly shaken after China’s decision. Bitcoin prices fell as much as 13% on Sunday. Although China’s move to stop mining remarkably coincided with Elon Musks’ decision to stop accepting Bitcoin for purchasing Teslacars, which also did not fall well in the crypto world. Musks decision to stop Bitcoin purchases had everything to do with the enormous amount of carbon China produces with mining. Bitcoin is now trading at around $38.000 per coin, which is far below the peak of nearly $64,000 it reached on April 13th.

So are we entering another bleak crypto period? Ulrik K. Lykke, Executive Director at crypto hedge fund ARK36 does not think so.

“The crypto markets are currently processing a cascade of news that fuel the bear case for price development. Last week, more than 250 billion USD evaporated from the Bitcoin market alone. In absolute terms, such a number may seem astronomical. In terms of percentages, though, such market moves are frequent and we have seen similar ones in the past. In 2017, price dives in the range of 35%+ happened several times before the price topped out.

When it comes to Elon Musk’s tweets or negative remarks from PBOC (The People’s Bank of China), it is important to distinguish their true impact from their perceived impact. Realistically, it is not the first time Elon Musk’s tweets have been erratic and, frankly, wrong; likewise, China has changed its stance on cryptocurrencies multiple times before. News like this can get a lot of traction and easily stir market sentiments but they often prove of little significance in the long term. The crypto markets are extremely emotionally driven and their participants are prone to overreacting to events they perceive as negative.”

Lykke also mentioned that, in terms of Bitcoin’s outlook, things may be looking grim right now, but he said that historically this is just yet another hurdle for Bitcoin to overcome and a small one compared to what it has braved in the past.

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